Monday, April 18, 2011

Gold Pushed Down By Snapback In Greenback

Thanks to the U.S. dollar rising through the overnight session, gold pulled back from near its new record high of $1,490.10 to around the 1480 level. That new high was made just after 8 PM ET, on a spike-up after some initial softness. It's less than a dollar above Friday's record of $1,489.30. Having been thwarted after that spike, the metal then settled down to just above the $1,485 level. As night turned into morning, that "just above $1,485" turned into $1,485 proper as the metal slowly sunk. There's some hints that the mainland Chinese authorities are letting the remimbi appreciate faster in order to combat inflation.

Gold's downturn accelerated as the greenback continued to climb, and was influenced by a one-dollar drop in WTI crude oil to a little above $108 despite a cut in Saudi output. The slow sinking turned into an outright slide just before 7 AM as the greenback accelerated. $1,480 provided some support for a while, but gave way at 8:00. As of 8:09, the spot price was $1,478.10 for a drop of $8.30 since Friday's close. The KitcoGold Index attributed +$2.25 to predominant buying and -$10.55 to a strengthening greenback.

The U.S. Dollar Index, as mentioned above, spent most of the overnight session rising after starting the evening off stuck at 74.9. Getting ahead of itself twice, and then pulling back, didn't deter its overall climb to well above 75.35. As of 8:17, it had paused a bit at 75.37.

A Bloomberg article said gold fell on a stronger greenback, as prompted by a report that the Grecian government may need a debt restructuring; that report weighed on the Euro. Again, the People's Bank of China has raised reserve requirements; this time, by 50 basis points to a record-high 20.5%. There's already talk about the PBoC raising the reserve rate to as high as 23-25% by the end of this year.

“A further pullback could be seen in gold and silver given the gains seen in recent weeks,” James Moore, an analyst at TheBullionDesk.com in London, said in a report to clients. Still, “rising debt problems could dampen economic recovery in the euro zone, and when coupled with other factors such as inflation, Middle East and North African unrest and the impact of Japan’s earthquake, we expect dip-buying to underpin the metals.”

Although the Grecian government denied any such restructring was needed, the cost of insuring its debt rose to a new record high today.

An earlier Reuters report, as webbed by the Sydney Morning Herald, said that gold made its record last night in spite of crude oil sinking a bit. Its jump rose on the heels of higher inflation for March over most of the world.

"It wouldn't be a surprise to see gold push higher in the current environment," said Darren Heathcote, head of trading at Investec Australia, adding that investors were concerned about inflation, especially when oil prices remain high.

Inflation expectations gave a surprising shot in the arm to the SPDR Gold Shares Trust last Friday; its holdings jumped 18.2 tonnes to 1,231.16 tonnes. That's as high as its holdings have been since January 24th.

"Both precious metals are benefiting from fears of rising inflation after China, the U.S. and the euro zone all reported higher than expected inflation rates on Friday," Commerzbank said. In addition, mounting fears that Greece will no longer be able to service is debts are boosting demand for "safe haven" metals assets such as gold and silver, positioning them for further gains, the bank said.

Edel Tully is quoted as saying that sentiment about gold amongst UBS' clients is the best she's seen all this year.

With no news on the U.S. economy released at 8:30, gold managed to shake off its pre-pit-session slump below $1,480. Rebounding from $1,477 before the pit session got rolling, the metal's recovery continued as regular trading started although pausing when $1,482 was reached. As of 8:43, the spot price was $1,481.30 for a drop of $5.10 since Friday's close. The Kitco Gold Index assigned +$5.15's worth of change to predominant buying and -$10.25's worth to greenback strengthening. The U.S. Dollar Index went through a bit of a pullback, but managed to halt its slide-back at a little below 75.35. As of 8:47, it had advanced a smidgen to 75.36.

The greenback's rebound was a surprise, and gold was affected by it. But, given that the greenback was driven up by Eurocrisis-related debt fears, gold wasn't driven down as much as the currency's rebound would otherwise indicate. There's still inflation fears supporting gold, and the People's Bank of China raising the reseve requirement did little to hold gold down. There may be some volatilty in gold today, as its drop in overnight combined with new eyes on Monday may induce a little skepticism.

Originally, The Gold Bubble was a perch for me to watch what I pegged as a nascent gold bubble - or, to be less controversial, the third stage of a long-term gold bull market.

As time went on, I drifted towards commentary on gold and the greenback, plus the interrelation between the two. The rest of the posts featured items about gold that I thought were interesting. I ended up diverging from the theme that the title promised.

So, I've reactivated the old blog under a different name. "The Gold Watcher" is a more accurate title for the blog that The Gold Bubble became.

The Enter Stage Right article that kicked off the predecessor blog contains a fuller explanation of my reasoning about a gold bubble: it's here. A sequel is here.

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Disclaimer

Although I try to compensate, I do have opinions that are almost certainly influenced by what I've done with my own money. For the record, I am long gold-exploration stocks. On the odd chance I mention one that I own, I'll disclose it fully. I don't own any physical gold, nor do I own any producers or any well-known explorers.

Also, I must emphasize that I am not a registered investment advisor, and that I am not licensed to dispense investment advice in my jurisdiction of residence (Ontario, Canada). Consequently, this is not an investment-advice blog. It shouldn't be taken as such. I cannot provide any actionable material in the standard sense of the term; if you're intrigued by anything here, you'll have to see to your own trigger.

In addition to the standard boilerplate caution for you to do your own due diligence should you invest or speculate, I'd like to add a special caution: gold, by far, is the asset class that elicits the most emotions. A solid consensus of experieced investment professionals considers emotionality to be a performance-hobbler. In addition to doing your own research, and/or using a licensed professional to do so, I suggest that you watch yourself.